Marijuana Stocks and ETFs: Risks and Rewards

Pot stocks are soaring again. After a rough end to 2018, many of the top stocks have been on a great run since January.

Shares of GW Pharmaceuticals GWPH have been gaining after the company's epilepsy drug, Epidiolex, became the first cannabis-derived drug to receive approval from the FDA.

Last year, Tilray TLRY received the DEA's approval to import a cannabinoid study drug into the U.S. The stock, which IPO'ed on the Nasdaq back in July at $17, is up about 250% since then. It is the first cannabis company to go public on a major US exchange.

The marijuana industry is growing fast and gaining legitimacy. According to data from research firm Euromonitor, the American market for legal marijuana products will reach $20 billion by 2020, up from $5.4 billion in 2015.

Many beverage giants are investing or planning to invest in cannabis. Coca-Cola KO is reportedly in talks with Canadian cannabis company Aurora Cannabis ACB to develop cannabidiol infused beverages. Cannabidiol is a non-psychoactive substance in marijuana that is known to have some health benefits.

Recreational marijuana became legal in Canada last October. However, it remains illegal at the federal level in the U.S., but 33 states and the District of Columbia have legalized the use of the drug for medicinal or recreational use.

Investors should also remember that marijuana stocks are extremely volatile. These are younger and risker companies in an industry that continues to evolve.

The ETFMG Alternative Harvest ETF MJ -the first and only pure play U.S. listed ETF targeting the cannabis industry--holds 35 companies that are involved in legal cultivation, production, marketing or distribution of cannabis or related products.

The ETF had changed its custodian and other service providers. It was trading above its NAV-the value of its underlying assets-for some time, which could be a sign that something is wrong. It could mean that the creation/redemption process for ETF shares was not working properly.

The ETF's provider, however, told the WSJ that a premium resulted from a sudden surge in demand for marijuana stocks.

To learn more about risks and rewards of investing in marijuana stocks and ETFs, please watch the short video above.

Zacks 2019 Marijuana Investors' Summit: In addition to the companies you learned about above, we invite you to learn more about investing in pot stocks. On Tuesday, February 26, our team of experts will reveal what we believe is the single best way to make money from legal marijuana. Register Now for Free >>

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